State Tax Trend No. 6: Tax Abolition

June 22, 2012

A relatively rare event in tax policy, many state governments are moving for the abolition of entire types of taxation. This means ridding taxpayers of the associated compliance costs and loss to economic growth, thereby attracting productive workers and businesses. Nevertheless, it remains essential that states do not simply substitute one tax for another, thereby failing to improve tax efficiency, says Joseph Henchman, an attorney and policy analyst at the Tax Foundation.

Several forms of taxation are currently being targeted by the states. Perhaps the most relevant in scale is the gradual abolition of state income taxes.

Income tax reductions or repeals in particular are under consideration in a number of Midwestern states.

Oklahoma would consolidate its present seven-bracket system into a single, flat-rate system to be gradually reduced over the next 10 years until it is eliminated entirely.

Though Kansas will not completely abolish its income tax, it will reduce the number of brackets from three to two and reduce rates, resulting in revenue losses of $2.7 billion over four years.

A proposal in Missouri that will likely be on the state ballot in the near future would eliminate the state's income tax entirely, making up the revenue through an increased sales tax.

Estate and inheritance taxes are also being eliminated slowly due to the expiration of a federal program that encouraged states to implement "death taxes." Ohio will eliminate its tax entirely starting in 2013, while Indiana will gradually phase its out by 2021.

Finally, property taxes are also being targeted.

Indiana, New Jersey and New York have implemented their own property tax caps.

California and Massachusetts also have similar propositions to be voted on by their residents.

Pennsylvania legislators are expected to consider a bill that would eliminate school district property taxes.